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Time Will Tell Whether iPhone Can Match Siblings’ Success

Steve Jobs turned Apple Inc.’s iPod business into a multibillion-dollar franchise by churning out innovations and refinements to the device every year. Next week will show whether Apple’s chief executive can do the same thing for the iPhone.

The Cupertino, Calif., electronics maker on Monday is set to kick off a weeklong technical conference in San Francisco with a presentation by Mr. Jobs and other top Apple executives, during which they are expected to showcase a new version of the iPhone. The device will be the first to support 3G wireless networks, which will let users surf the Internet at far faster speeds in most areas than they can on the current iPhone.

Apple executives will also make a big push to promote iPhone 2.0, the software that will power new and old iPhones, giving users the ability to download a wide range of games, social-networking programs and other applications from Apple and independent software makers. A big family of iPhone applications could sweeten the appeal of the device for a range of users.

For Apple so far, the iPhone has generated more investor and consumer buzz than it has a financial bonanza for the company. The device and related products in its most recent quarter only accounted for about 5% of Apple’s revenue, partly because of the way Apple accounts for sales from the product. The iPod, in contrast, generated nearly a quarter of Apple’s $7.51 billion in revenue in its most recent quarter.

The second-generation iPhone could change that. It arrives at a time when Apple has been going on a binge of deal making with wireless carriers around the globe. In a research report this week, American Technology Research analyst Shaw Wu estimated that the carrier deals expand the pool of potential iPhone buyers to as many as 755 million people from the 153 million in the iPhone’s current markets — the U.S. and a few European countries.

A 3G iPhone will be key to winning over consumers in new markets like Japan. Mr. Wu predicts Apple will continue to sell the current 2.5G iPhone, with its slower Internet-surfing speeds, at a $50 to $100 discount to its current $399 starting price.

That would mimic the approach Apple took with the iPod, which evolved over time into a broad multiproduct family offering different features at various prices. Think iPhone nano, iPhone classic and so on.

Mr. Wu, for one, envisions the iPhone one day becoming as large as Apple’s booming Macintosh computer business, bringing in as much as $15 billion to $20 billion in annual revenue.

At next week’s technical conference, the iPhone will share the stage with the Mac. The coming years, though, could show whether the iPhone can contribute as much to Apple’s business as its older siblings.

[By Nick Wingfield; http://online.wsj.com]

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